Breweries, wineries, and distilleries could soon raise their taxes if Congress doesn’t extend a 2017 tax break that expires later this year. Brewers say a tax hike could be devastating for an industry already hit by the coronavirus pandemic.
The temporary tax break was part of the GOP tax cuts passed in President Trump’s first year in office.
For U.S. breweries that produce less than 2 million barrels per year, the changes reduced federal excise tax from $ 7.00 per barrel to the first 60,000 barrels per year to $ 3.50 per barrel. For larger brewers, the tax is now $ 16 per barrel for the first six million barrels, compared to $ 18 per barrel before the tax overhaul.
If Congress doesn’t act, taxes will go up on January 1st.
“The sale hurts. We’re doing everything we can to cut costs, save money and keep the doors open. And if our excise rates double overnight, it will be utterly disastrous for us and the thousands of other small craft breweries in the United States, ”said Bill Butcher, founder of Port City Brewing Co in Alexandria, Virginia.
Breweries say an upcoming tax hike could hurt an industry already hit by the pandemic.
Todd Baldwin, owner of Red Leg Brewing Company in Colorado Springs, Colo., Told Yahoo Finance that he received a Paycheck Protection Program loan in the spring and avoided laying off workers or taking vacation. He is in the middle of an expansion that began a year ago, but now he’s also preparing for the upcoming tax hike – made even more difficult by the inability of Congress to reach an agreement on incentives.
“There’s no PPP loan this time,” Baldwin said. “Everyone has to go into the reserves and now we are blowing the reserves through as quickly as we can.”
Metzger, Baldwin, and many others in the industry have had to close their indoor tasting rooms because of the pandemic. Port City Brewing usually sells its beer to bars and restaurants across the DC area, but that source of income – usually 57% of its business – has also dried up.
Fortunately, we have sales in grocery stores and retail stores, and business has been healthy, “Butcher said. “That survived the pandemic.”
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While Baldwin said demand in liquor stores has remained strong through the pandemic, more and more breweries are shifting from selling in tasting rooms to packaging for stores.
“You have a whole new base of competitors rising to this level,” said Baldwin. “We have this unique demand right now where we have to keep our people busy, but we don’t make that much money because a large part of our sales – which is in the tasting room – is gone.”
Breweries like Port City Brewing Co. in Alexandria, Virginia, are pushing for a permanent tax cut for 2017.
Craft brewery owners across the country say a 100% increase in federal excise tax would only make their pandemic problems worse.
Butcher told Yahoo Finance that he used savings from the excise tax reduction to offer retirement benefits to his full-time employees. If taxes go up, he’ll probably have to cut those benefits.
“It was very, very popular with our full-time employees. It was also a great recruiting tool when we need to hire a new brewer, ”said Butcher. “It has been a huge advantage for us to have the talent we need to grow our business.”
While Butcher says his company could likely make it through a tax hike, smaller breweries might not survive.
“In the middle of the biggest economic downturn this country has seen in generations, you can’t double tax rates,” said Butcher.
Baldwin warned that if the tax hike goes into effect, beer lovers could see prices rise in their local breweries.
“It won’t affect a brewery or two here or there in certain states,” Baldwin said. “It will definitely be felt by most Americans.”
There is a bipartisan push to extend the lower rates. Seventy-seven senators and 351 representatives signed the Craft Beverage Modernization and Tax Reform Act that would make the tax cuts permanent. This week, half of the Senate signed a letter to Majority Leader Mitch McConnell and Minority Leader Chuck Schumer, urging them to include the bill in any legislative package before the end of the year.
“In addition to creating jobs in all states and in the congressional district, beverage alcohol producers are key partners for our farmers and agribusinesses, the tourism, manufacturing and hospitality industries, including restaurants, bars and other local establishments,” the legislature wrote Producers have over four million jobs across the country and contribute immensely to the vitality of our economy and our communities. “
Jessica Smith is a reporter for Yahoo Finance based in Washington, DC. Follow her on Twitter below @ JessicaASmith8.